Fundstrat's bullish strategist Tom Lee told investors the market will rally into year-end based on historical patterns.
As a result he recommends clients buy stocks that consistently outperform during this time of year.
"Over the past week, investors have begun to seriously question the potential for market to rally into YE. ... Has our conviction changed about markets staging gains into YE? No," Lee wrote in a note Friday.
"Since 1940, to gauge what stocks do between 9/15 and YE is simply look at YTD performance. When stocks are up 5% or better, they rally into YE. ... In other words, we believe this 3% pullback NEEDS TO BE BOUGHT aggressively."
The strategist forecasts an additional 6 percent to 8 percent return for the market by Dec. 31. He cited how the market rallied into year-end 87 percent of the time when the year-to-date performance is up 5 percent or more on Sept. 15, as it was this year. On the flip side, when stocks are down on the year by Sept. 15, the market tends to not rally.
Moreover, Lee says the market rallied eight of the last nine presidential election years during the same time period with the only exception being 2012.
"We believe this law of motion is simply reflecting that whatever forces and factors drive YTD gains, are likely to remain in place into the end of the year. And we see this at work in 2016 — (i) global search for carry; (ii) US economy remains on strong footing; (iii) under-invested investors (performance chase) and (iv) contrarian sentiment," Lee said.
To take advantage of the potential rally, Fundstrat found stocks that outperformed from mid-September to the end of December every year since 2010. Here are 6 stocks that made the list.
